FEASIBILITY AND COST
As a Systems Analyst , you
need to know how to calculate a project's cost and Benefits when conducting a
Preliminary Investigation, Evaluating Projects, and making recommendations to
management. Indeed, the
Systems Analyst must analyze a project's Costs and Benefits at the end of
each Project development Phases
(i.e SDLC) so that management can decide whether or not to continue
with the Project development effort.
However, before you conduct Economic
Feasibility you must learn how to identify and classify all Costs and Benefits.
Costs can be classified as
Direct Costs or Indirect Costs
Fixed Costs or Variable Costs
Development Costs or Operational Costs.
Tangible Costs or Intangible Costs
Are Costs that can be associated with the development of a specific
System. Example of Direct Costs include the Salaries of Project team
members, Purchase or lease of Hardware and Software that is used only for the
INDIRECT COSTS (Overhead
Are those costs that can not be attributed to the development of a
particular Information System. For example; The Salaries of Network
Administrators, Database Administrators, Copy Machine rentals and insurance
expenses are the example of Indirect Costs.
Are Costs that are relatively constant and do not depend on a level of
activity or effort. Many Fixed costs recur regularly, such as Salaries and
Hardware rental charges, office rent etc.
Are Costs that that vary
depending on the level of activity. Example:- The Costs of Printer
stationary paper, ribbon, telephone line charges, electricity etc are Variable
Are incurred only once at the time the System is developed or
acquired. This costs might include salaries of people involved in Systems
Development, Software purchase, initial User Training, and the purchase of
Hardware and accessories .
Are incurred after the System
is implemented and continue while the System is in use. Examples might
include Systems maintenance, ongoing Training, annual Software License
fees annual Maintenance contract fees, and Communications expense.
Are Costs for which you can assign a specific monetary value (i.e Dollar
value). Examples of Tangible Costs include Employee Salaries, Hardware and
Software purchase, and office Supplies.
Are those costs whose monetary (Dollar) value cannot be calculated easily.
Examples might include the Cost of Customer dissatisfaction, lowered employee
morale, reduced information availability etc. However, if an Analyst
examines an Intangible Cost item carefully, it is sometimes possible to
estimate a dollar value for it. For example; Users might dislike a System
because it is difficult to learn and operate . The Users dissatisfaction
is an Intangible Cost, but if it translate into an increase in errors that must
be corrected, you probably could assign a Tangible Dollar Cost. "You
should try to work with Tangible Costs whenever possible".
Note that Some Costs apply to more than one
category of Expenses. For example; Overtime pay for clerical help during the
Systems Analysis Phase might be considered as Development Costs, Variable Cost,
and Direct Cost. Again, a Monthly fee for maintaining the company's Web
Site might be Operational Cost, Fixed Cost, and Indirect Cost.
Like cost Benefits can be classified
Another Benefit classification relates to the nature of the Benefit:-
Cost- avoidance Benefits
BENEFITS: increases revenues, improves services
otherwise contributes to the organization as a direct
result of the new System. Examples of Positive Benefits include
improved information availability, greater flexibility, faster
to customers, higher employee morale, and better
Refers to expenses that would be necessary if new
is not installed. Examples include Handling the
work with current staff instead of hiring additional
having to replace existing hardware or
software and avoiding problems that would otherwise be
forced with the current System.
Cost-avoidance Benefits are just as
important as Positive
Benefits and must be considered both types of Benefits
when performing Cost-Benefit Analysis.
Project is Economically Feasible if the future benefits outweigh the estimated
developing or acquiring the new Computer System.
COST- BENEFIT ANALYSIS
Cost-Benefit Analysis is the process
of comparing the "Anticipated Costs" of an Information System to the
Cost-Benefit Analysis is performed throughout the Systems Development Life Cycle
(SDLC) to determine the Economic
Feasibility of an Information System Project and compare alternative solutions.
Many different Cost-Benefit Analysis techniques exist. However, we will
discuss only the three most common Cost-Benefit Analysis methods; namely Payback
Analysis method (PBA), Return On Investment Analysis method (ROI) and Present
Value Analysis Method (PV).
COST BENEFIT ANALYSIS METHODS|